Question

Chris Wade makes an investment in the following two companies: STOCK: # of shares Current Price Per Share Coca-Cola (KO) 65.00 $58.02 Home Depot (HD) 47.00 $61.34 The expected return on the portfolio is 12.00% in the coming year. What is the weight of Coca-Cola (Ticker symbol: KO) in his portfolio? Submit Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

#18 An investor builds a two stock portfolio between Apple and Home Depot. Information about his investment is shown in the table below: STOCK: Weight in Stock: Expected Return Standard Deviation Apple (A) 40.00% 10.00% 30.00% Home Depot (B) 60.00% 8.00% 18.00% The correlation between the two stocks is 0.40. What is the covariance between Apple and Home Depot? Submit Answer format: Number: Round to: 3 decimal places.

Answer 1

1). Total Investment Value = Investment in Coca-Cola + Investment in Home Depot

= [65 * $58.02] + [47 * $61.34]

= $3,771.30 + $2,882.98 = $6,654.28

Weight of Coca-Cola in his portfolio = Investment in Coca-Cola / Total Investment Value

= $3,771.30 / $6,654.28 = 0.5667, or 56.67%

2). Covariance(Apple,Home Depot) = Correlation(Apple,Home Depot) * S.D.(Apple) * S.D.(Home Depot)

= 0.40 * 0.30 * 0.18 = 0.0216, or 0.022